More employers are adding the brokerage accounts to their 401(k) offerings in response to demand from highly paid employees, who say they want more control over their investments.

Since federal prohibits limiting such perks to certain groups of employees, all employees are offered the brokerage accounts. And there lies the rub, since many employees are bewildered by the choices they already have, the Times reports.

"When you give the average employee too many choices, it tends to cause them to freeze and make no choice at all," said David Wray, president of the Profit Sharing/401(k) Council of America, an association of companies that run profit sharing and 401(k) plans.

Brokerage accounts allow employees to invest in individual stocks, bonds, and mutual funds outside their core 401(k) plan. Some companies, according to the Times, allow employees to buy virtually any publicly traded security; other companies bar use of the brokerage account to buy company stock, and some limit investments in the accounts to mutual funds.

Until recently, only small companies offered brokerage accounts in retirement plans. But by last year, 11 percent of large companies - those with 5,000 or more employees - included brokerage accounts in their 401(k)'s, according to the profit-sharing council. That compares with 5 percent in 1997.

Though companies that offer the accounts generally say that they are trying to accommodate employees, many financial experts say people need more financial education, not more choices.

"If the average 401(k) plan has 12 options, within that, you can probably build a pretty diversified portfolio. The problem is that most people don't. People often don't have the time, interest or expertise to run their own money," said Joshua Dietch, associate director at Cerulli Associates.

The Times notes that even though the number of choices has grown in the last decade, the average person invests in just three options, according to a 2001 study of 401(k) plan participation by the Vanguard Group.

Just 2 percent of the 100,000 people in Vanguard 401(k) plans who are offered the option of a brokerage account actually use one, and Vanguard does not encourage their use. "For the right kind of investor it could be fine," said Jim Norris, who is in charge of institutional retirement plan services at Vanguard. "But we know that most individuals are not going to beat the market, so it's hard to really make an argument for why this would make sense for most people,"

Still, progress is being made in 401(k) investor education, with some companies beginning to take advantage of a December 2001 ruling by the Labor Department, which gave 401(k) providers an exemption from conflict of interest regulations that had discouraged them from directly advising their investors. Now, plan providers can offer advice through third parties.

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• New York Times article (Registration required, but it's free)